Cheta Nwanze, Lead Partner, SBM Intelligence
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Subjects of Interest
- Fiscal Policy
- Geopolitical Analysis
Should Nigeria foray into semiconductor production? 17 Oct 2023
There has been some discussion recently regarding Nigeria's potential foray into semiconductor production. While the appeal of this industry is evident, it is imperative to consider the risks and challenges associated with such a pursuit, and an interview I saw recently on Arise TV prompted this piece.
Semiconductors, the invisible powerhouses behind modern technology, are a lucrative industry worth trillions of US dollars. In 2022, the global semiconductor market was valued at $555.9 billion, with projections suggesting a climb to $1 trillion by 2030. However, the semiconductor production landscape is dominated by a handful of nations, including China, South Korea, Taiwan, the United States, and Japan. These countries collectively account for over 90% of global semiconductor production.
With its vast population and abundant resources, Nigeria might seem like a contender in this space, but the reality is that establishing a competitive semiconductor industry is no small feat. Established leaders in the semiconductor industry, notably Taiwan's TSMC, South Korea's Samsung, and China's SMIC, have invested heavily over decades, resulting in cutting-edge technology, advanced manufacturing processes, and extensive semiconductor design and production expertise. This level of technological maturity creates a substantial barrier for newcomers like Nigeria.
Building a skilled semiconductor workforce is another formidable challenge. The specialised knowledge required for semiconductor production takes years to develop, making it challenging for Nigeria to compete in this area. Market presence is equally crucial. Asian semiconductor companies have global reach and robust supply chains. They possess long-standing relationships with major tech corporations and have a significant share of the semiconductor market. This dominance allows them to produce semiconductors cost-effectively due to economies of scale. Nigeria would require substantial investments to compete on this level. Additionally, the semiconductor industry's rapid technological advancements necessitate continuous research and development (R&D) investments, a costly and resource-intensive commitment at a time when Nigeria has arguably never been poorer.
In light of these formidable challenges, Nigeria should strongly consider avoiding direct competition with established Asian semiconductor producers, which would make Nigeria economic opponents and, instead, focus on strategic mutually beneficial partnerships with these nations, which would be a more prudent approach.
There are several advantages associated with pursuing partnerships over head-on competition with significantly more equipped parties:
Access to Advanced Technology: Asian countries, particularly those in East Asia, have made substantial investments in cutting-edge technology. Partnering with them grants Nigeria access to this technology without the need for massive indigenous R&D investments needed to make them on their own.
Knowledge Transfer: Collaborating with Asian players facilitates knowledge transfer. Nigerian professionals and researchers can learn valuable skills and insights from their Asian counterparts, enriching their expertise applicable across diverse industries.
Market Expansion: Asian countries boast large and diversified consumer bases, presenting significant market prospects. Partnerships with Asian corporations unlock these markets, which may prove challenging to penetrate independently.
Risk Mitigation: Engaging in partnerships often involves sharing risks and responsibilities. This presents a notable advantage for Nigeria, mitigating the financial burden and risk associated with direct competition in fiercely competitive tech markets.
Cost-Efficiency: Partnering with Asian tech giants offers a cost-efficient avenue. Nigeria can leverage these companies' existing infrastructure and expertise, conserving resources for allocation to other critical development priorities.
Establishing a competitive semiconductor industry within Nigeria is undeniably a complex and financially demanding endeavour. However, Nigeria's strategic continental position and mineral resource advantages, at best, position it to explore mutually beneficial hosting partnerships with Asian semiconductor stalwarts that are complementary rather than competitive. Such collaborations can serve as a catalyst for Nigeria's technological and economic progress.
Nigeria's pursuit of technological advancement should be rooted in pragmatism. Rather than attempting to leap directly into high-stakes semiconductor production, we should focus on achievable, foundational facets that are crucial for building a robust economic and industrial structure.
We can look to Cuba for inspiration. Cuba's biotechnology success is an exemplary case of a pragmatic venture rather than technological overreach. The underlying factors that substantiate this pragmatism include:
Business Case for Biotechnology: Cuba's entry into biotechnology was driven by compelling factors. The foremost was its political and economic isolation, particularly its complex relationship with the United States. The U.S. embargo forced Cuba to develop self-reliance across sectors, notably healthcare and biotechnology, which was a practical response to external limitations.
Commitment to Healthcare: The Cuban government's unwavering dedication to healthcare as a fundamental human right profoundly influenced the business case for biotechnology. Beyond economics, this commitment was deeply ingrained in Cuban society, making biotechnology a natural fit as it aimed to deliver affordable healthcare solutions.
Educational Foundation: Cuba's well-established educational system was pivotal in supporting its biotech ambitions. The nation invested in a robust scientific and medical education system, resulting in a skilled workforce well-suited for biotechnology. This investment in human capital was a strategic move aligned with Cuba's long-term objectives.
International Collaboration: Despite political isolation, Cuba engaged in fruitful international collaborations and partnerships within biotechnology. These ventures allowed Cuba to access invaluable resources, expertise, and global opportunities, underscoring the nation's pragmatic approach.
Cuba's Market Success in Biotechnology: Cuba's success in biotechnology markets demonstrated pragmatism rather than overreach. Despite facing challenges, Cuba strategically exported biotech products, including vaccines and medicines, primarily to Global South countries. This focus aligned with the demand for affordable healthcare solutions, generating revenue and enhancing Cuba's reputation.
However, Cuba's ability to fully exploit its biotechnological innovations faced constraints due to geopolitical circumstances. The U.S. embargo and intellectual property issues created market access challenges. Yet, Cuba's 'healthcare diplomacy' approach showcased its biotech products, fostered collaboration, and created a global market presence, emphasising a pragmatic approach to international engagement.
In essence, Cuba's involvement in biotechnology was driven by political isolation, healthcare commitment, educational investments, and international collaboration. These elements substantiate the pragmatic nature of its venture. Examining Cuba's case underscores the importance of pragmatic ventures that leverage local strengths and target markets based on unique financial and environmental characteristics, dispelling the notion of technological overreach.
Our unique environment can serve as a fertile ground for business and industry models tailored to the Global South's needs. Rather than diving into resource-intensive endeavours like semiconductor production, Nigeria can harness its unique circumstances to chart a more sustainable path forward.
Nigeria's socio-economic challenges have bred a culture of resilience and innovation among its entrepreneurs. These visionaries have embraced adaptation and creativity, leading to remarkable advancements across various sectors. The country boasts a thriving tech sector, with startups and companies creating innovative solutions for local and global issues. Paystack, a Nigerian fintech firm, is a testament to this innovation, providing a widely used payment platform across Africa, and being acquired by Stripe, one of the world-leaders in its field. Nigeria's banking sector pioneered innovative products and services. GTBank, for instance, offers a popular mobile banking service while expanding its presence across Africa.
In entertainment, Afrobeats which originated in Nigeria, has become a globally acclaimed music genre, propelling Nigerian culture and fashion into the global spotlight. While Nigeria's film industry, Nollywood, ranks second globally in production volume. Its films are celebrated for their creativity and storytelling prowess, amplifying Nigerian culture worldwide.
So, how can we leverage Nigeria’s distinct environment?
Nigeria can leverage its unique environment as a blueprint for business and industry models that cater to the Global South's requirements. This can be achieved by:
Providing a Platform for Experimentation: Nigeria's challenging backdrop allows entrepreneurs to experiment with novel ideas and business models. These innovators constantly seek solutions to everyday challenges, leading to groundbreaking solutions.
Fostering a Culture of Innovation: Nigerian culture values creativity and innovation, as evident in technology, Afrobeats, Nollywood, and banking. This cultural foundation underpins the country's innovative spirit.
Building a Robust Network: Nigeria has cultivated a network of entrepreneurs and investors willing to support new ventures. This network can provide valuable resources and mentorship, nurturing budding businesses.
Sharing Knowledge: Nigeria can extend its expertise and knowledge to other Global South nations. Initiatives such as training workshops and mentorship programmes can help these countries establish their own incubators for business and industry models.
By adopting these strategies, Nigeria can rise as a prominent developer of business and industry models tailored to the unique needs of the Global South. Its potential as an incubator for innovative solutions transcends geographical boundaries.
Can Nigeria be a catalyst for the Global South?
Nigeria can spearhead economic growth and development for the entire Global South. By strategically capitalising on its unique circumstances, we can lead in incubating business and industry models that empower countries across the Global South. Doing this will secure Nigeria's sustainable economic growth and will extend a hand to others, fostering a collective journey toward progress and prosperity.
A final caveat: all of this will work if, and only if, we sort out our internal issues first. This article was written with the mindset that our biggest internal issues threatening economic progress – the Land Use Act, power, and short-termism amongst our officials – should be mitigated in the first instance.
Cheta Nwanze is Lead Partner at SBM Intelligence.